Roth Conversion Strategy
Do you have an opinion when doing Roth conversion strategy from an IRA into multiple Roth accounts for different asset classes to Utilize the ‘Keep the winner strategy’and recharacterizing the losers. Issues is to covert from just the one original IRA and move the recharacterized ones back into the one original IRA or to open up an equivalent number of Traditional IRA’s to Roth IRA’s and move the recharacterized Roth back into each separate traditional IRA as a holding IRA? Numerically I suppose it would be something like. Going from 1 to 3(the different roth accounts or going from 1(original IRA) to 3(traditonal IRA’s) to 3 Roth IRA’s . Advantages of using separate traditional IRA’s to hold recharacterized funds instead of just the one original one. Sorry for any confusion.
SC
Permalink Submitted by mk foss on Tue, 2013-07-09 16:35
The usual way this strategy is employed is to roll from one traditional IRA or 401(k) to a number of Roth IRAs for each desired asset class. When the recharacterizatin deadline has passed, the various accounts are combined into one. If recharacterization is desired, the funds go from the loss Roth back to a traditional IRA. The recharacterizaiton does not have to go back to the original IRA but it cannot go back to a 401(k) – just send it back to any IRA.
Permalink Submitted by steve jackson on Tue, 2013-07-09 16:59
Understood, my question was really the advantage of openining seperate IRA’s to recharacterize back to as opposed to recharacterizing back to origional IRA. I remember reading that their may be an advantage to this? I may be wrong. May have been from James Lange or Robert Keebler.
Permalink Submitted by Alan - IRA critic on Tue, 2013-07-09 17:12
The only reason to set up a separate TIRA account to receive each recharacterization is to make it clear to the IRS that you did not do a disallowed reconversion of the same assets according to the waiting period requirement. The separate TIRAs receiving recharacterizations would not have a 1099R at all unless you eventually recombined them by indirect rollover rather than by non reportable transfers. That said, I have never heard of the IRS inquiring about a reconversion waiting period. The separate TIRAs are probably of more benefit if two years of conversions are more than half the original combined TIRA balance. When the original TIRA is large enough then there is more than enough to fund all conversions without using recharacterized dollars. Conversely, if you are taking your entire TIRA and dividing it into 3 conversions, there is nothing left to reconvert without using recharacterized amounts, thus the greater benefit of separate TIRAs for each recharacterization.
Permalink Submitted by steve jackson on Tue, 2013-07-09 17:28
Headdy stuff, have to pause to think about that.. It sound like usually their is no benefit of opening seperate IRA’s to hold/recieve recharacterized funds especially if origional TIRA is significant where recharacterized values will always be less than total value of TIRA. Sure saves a lot of work not having to set up equal number of seperate IRA’s to Roth IRA’s. You saved me a lot of work.Thanks Alan and mgtf4cpa- yall are great